National Blog

Is the Fed Arguing in Bad Faith?

Paul-Martin Foss examines the Fed's claim that the Audit the Fed bill would allow Congress to dictate monetary policy and let Congress "look over the Fed's shoulder" in real time, to see if the Fed's claims have any credibility (SPOILER ALERT THEY DO NOT):

The first time Audit the Fed passed the House of Representatives, it was as an amendment to H.R. 3996, which was then rolled into H.R. 4173, the first version of the bill that eventually became the Dodd-Frank Act. The language of Audit the Fed was modified to conform to the concerns expressed by Chairman Bernanke.

With respect to the Fed’s concerns that Audit the Fed would allow an audit in real-time, language was inserted to read:

Audits of the Federal Reserve Board and Federal reserve banks shall not include unreleased transcripts or minutes of meetings of the Board of Governors or of the Federal Open Market Committee. To the extent that an audit deals with individual market actions, records related to such actions shall only be released by the Comptroller General after 180 days have elapsed following the effective date of such actions.

Surely if the Fed is concerned about Congress looking over its shoulder, it shouldn’t have a problem with a six-month lag for its actions to be auditable, should it? Just imagine what would happen if Greece were to exit the euro, the Eurozone were to go to hell in a handbasket, and the Fed were to re-engage its swap lines with the ECB. Would it really be so onerous if, six months after that were completed, Congress were to take a look at those actions and see what actually happened? Because as it stands right now, GAO is legally prohibited from doing that.

With respect to the concerns about Congress dictating monetary policy, the modified language of the Paul-Grayson Audit the Fed amendment inserted language stating that:

Nothing in this subsection shall be construed… as interference in or dictation of monetary policy to the Federal Reserve System by the Congress or the Government Accoutability Office…

That right there makes it pretty clear that the authors of Audit the Fed have no interest in dictating monetary policy or in having GAO do so either. Assertions to the contrary by certain Fed officials have no basis in fact.

Let’s not forget that Congress already sets the parameters of monetary policy through the dual mandate that was established over 35 years ago. And if Congress wanted to, it could minutely dictate monetary policy. That, however, would require legislative action to override the Fed’s power, something which is not found in Audit the Fed. Those Fed officials claiming that Audit the Fed would give Congress the power to dictate monetary policy know that, yet continue to make these unsubstantiated allegations.